India may face downgrade on deficit

MUMBAI: India���s rising fiscal deficit, seen at 6 per cent of GDP at end 2008-09, might lead to downgrade of the country by international ratings agencies. The fiscal deficit for the current year is far higher than the initial target of 2.5 per cent. For the year 2009-10, it is expected to be 5.5 per cent.

Worried over the rising fiscal deficit, market watchers are not ruling out a downgrade by rating agencies.

Standard and Poor's is already said to be planning a review India's domestic debt rating after the government's interim budget on Monday forecast increased borrowing and a higher fiscal deficit.

Said Saurabh Nanavati, CEO, Religare AMC: ���The interim budget has turned out to be a dampener for the market, which was expecting industry sops and lesser fiscal estimates. In case of any further fall in indirect and direct revenue collections by the government, I expect the combined fiscal deficit at around 9 per cent by the end of March 2010. The compounding fiscal situation may force rating agencies to downgrade India.���



Poor corporate performance is seen as the main reason for low revenue collections by the government. ���In order to push up their topline, companies are bound to take hits in their bottom line. This results in lower payment of direct and indirect taxes,��� pointed out Waqar Naqvi, chief executive, Taurus Mutual Fund.

Ravi Sankar, banking analyst at Antique Broking, said, ���the downward risk to GDP estimates will increase chances of fiscal deficit ending up to be more than 6 per cent by the end of FY 2009. Hence, chances of re-assessing India���s situation by rating agencies are high.���